CORPORATE FINANACE 1& 2 PROJECT REPORT SUBMITTED

TO

in partial fulfilment for the award of the degree of

MASTER OF BUSINESS ADMINISTRATION

(Finance)

Submitted by:

ABENAITWE ALLAN

Reg. No: 22154040415

SEPTEMBER 2024
Contents

1. Introduction to Coursera Capstone Project completed

2. Skills/Techniques learnt in Coursera Capstone Project

3. Key Takeaways from the Capstone Project

4. Brief note on real time applications of key takeaways from this project

5. Coursera Capstone Project Completion Certificate

*******

1. Introduction to Coursera Capstone Project Completed

The Coursera Capstone Project represents the culmination of the Corporate Finance Specialization, built on
the principles and practices covered in "Corporate Finance I: Measuring and Promoting Value Creation" and
"Corporate Finance II: Financing Investments and Managing Risk." This capstone involved a thorough
analysis of a selected company, applying advanced valuation techniques, financial modeling, and risk
management strategies to deliver actionable insights and recommendations. For this project, we analyzed
Tech Innovators Inc., a hypothetical technology company, to assess its financial health and strategic
options. This included valuing the company, optimizing its capital structure, and managing financial risks
associated with its business operations.

2. Skills/Techniques Learned in Coursera Capstone Project

The capstone project provided practical experience in several advanced financial skills and techniques:

1. Advanced Valuation Techniques:

Discounted Cash Flow (DCF) Analysis. To value Tech Innovators Inc., we employed a DCF analysis by
projecting its future free cash flows (FCF). We estimated a 5-year revenue growth rate of 15% based on
historical performance and market trends. Using a discount rate of 8% derived from the company’s
weighted average cost of capital (WACC) and a terminal growth rate of 3%, we calculated the present
value of the FCFs to determine the company’s intrinsic value. This process involved detailed assumptions
about revenue streams, operational costs, and capital expenditures.

Comparable Company Analysis (CCA): We performed a CCA by identifying peer technology firms such
as FutureTech Corp. and Innovate Solutions Ltd. We compared Tech Innovators Inc.’s P/E ratio,
EV/EBITDA, and EV/Sales multiples against these peers to gauge its market valuation relative to its
competitors. This analysis provided a valuation range for Tech Innovators Inc., helping to corroborate our
DCF results.

Precedent Transactions Analysis: We analyzed recent M&A transactions within the tech sector, such as
the acquisition of TechSoft Inc. by Digital Ventures LLC. This involved examining the transaction
multiples (e.g., EV/EBITDA) to estimate a reasonable valuation for Tech Innovators Inc. based on historical
transaction data.

2. Financial Modeling and Forecasting:

Dynamic Financial Models: We built a detailed financial model for Tech Innovators Inc., incorporating
forecasted revenue, operating expenses, and capital expenditures. The model included various scenarios,
such as a high-growth scenario where revenue increased by 20% annually versus a conservative scenario
with a 10% growth rate, allowing us to assess the impact of different growth assumptions on valuation and
financial health.

Scenario and Sensitivity Analysis: We conducted sensitivity analysis on key variables such as revenue
growth rate and discount rate. For instance, we tested how a 2% increase in the discount rate from 8% to
10% affected the valuation of Tech Innovators Inc., revealing a decrease in the company’s intrinsic value
by approximately 15%.

3. Risk Management and Mitigation:

Quantitative Risk Assessment: We utilized Value at Risk (VaR) to measure potential losses in Tech
Innovators Inc.’s portfolio under normal market conditions. By analyzing historical price movements and
market data, we calculated a 1-day VaR of $500,000, indicating the maximum expected loss with 95%
confidence over one day.

Hedging Strategies: To manage currency risk due to international sales, we proposed using currency
forward contracts. We calculated the cost of hedging using a 6-month forward contract to lock in exchange
rates and protect against unfavorable currency fluctuations impacting the company’s profit margins.

4. Capital Structure Optimization:

Debt and Equity Financing: We evaluated various financing options for Tech Innovators Inc., comparing
the cost of issuing new equity versus taking on additional debt. We analyzed the impact of a proposed $50
million debt issuance on the company’s WACC and financial leverage, finding that debt financing would
lower the WACC from 8% to 7.5% due to the tax shield benefits.
Optimal Capital Structure: Using the Modigliani-Miller theorem, we determined the optimal capital
structure for Tech Innovators Inc. We balanced the benefits of debt (e.g., lower cost of capital) against the
potential risks (e.g., increased financial distress) to propose a target debt-to-equity ratio that maximized
firm value while maintaining financial stability.

5. Strategic Financial Planning:

Budgeting and Forecasting: We developed a 5-year strategic financial plan for Tech Innovators Inc.,
including detailed budgets for R&D, marketing, and operations. We incorporated revenue projections, cost
assumptions, and capital expenditures to create a comprehensive financial forecast, aligning with the
company’s growth strategy.

Performance Evaluation: We implemented a balanced scorecard approach to evaluate Tech Innovators

Inc.’s performance. We tracked financial metrics such as ROI and ROE, operational metrics like customer
satisfaction and process efficiency, and strategic metrics including market share and innovation rate.

3. Key Takeaways from the Capstone Project

The capstone project provided several key insights:

 Holistic Valuation Approach: Combining multiple valuation methods, such as DCF, CCA, and
precedent transactions, leads to a more accurate and reliable valuation. This multi-faceted
approach ensures that different aspects of a company's value are considered.
 Adaptive Financial Models: Dynamic and scenario-based financial models offer valuable insights
into potential outcomes and allow for better-informed decision-making under uncertainty. The
flexibility to test various scenarios helps in understanding the impact of different assumptions.
 Proactive Risk Management: Identifying and quantifying risks through tools like VaR and
implementing hedging strategies are crucial for safeguarding against financial uncertainties. A
proactive approach to risk management can mitigate potential adverse effects on financial stability.
 Strategic Capital Management: Optimizing capital structure by balancing debt and equity is
essential for minimizing the cost of capital and enhancing firm value. Understanding the trade-offs
between different financing options helps in making strategic financial decisions.
 Informed Decision-Making: Integrating financial analysis with strategic planning ensures that
decisions align with long-term corporate goals and drive sustainable growth. Performance
evaluation through metrics and scorecards provides ongoing insights into the effectiveness of
financial strategies.

4. Brief Note on Real-Time Applications of Key Takeaways from This Project

As an auditor, the insights and skills gained from the Coursera Capstone Project have significant real-time
applications that can enhance my auditing practices. Below are detailed applications of the key takeaways
from the project in my role:

1. Holistic Valuation Approach

 Application in My Auditing Work: Valuation Reviews: When reviewing financial statements,

especially in areas such as goodwill or business valuations, I can apply a holistic valuation
approach. This involves evaluating the methodologies used by management, such as Discounted
Cash Flow (DCF) models, Comparable Company Analysis (CCA), and Precedent Transactions, to
ensure that valuations are reasonable and compliant with accounting standards (e.g., IFRS, GAAP).
If I am auditing a company that has recently completed an acquisition, I would review the valuation
models used to determine the fair value of acquired assets and liabilities. This ensures that the
values recorded are accurate and reflect the fair value at the acquisition date.

2. Adaptive Financial Models

 Application in My Auditing Work: Financial Projections and Forecasts: I can assess the
accuracy and reliability of financial projections and forecasts provided by management. This
involves reviewing the assumptions used in financial models, such as revenue growth rates and
discount rates, and testing the sensitivity of these models to various scenarios to ensure they are
realistic and supportable. During an audit of a company’s budgeting process, I might test the
financial models used for forecasting future cash flows and performance. This includes evaluating
assumptions behind revenue growth and cost projections and ensuring that they align with
historical performance and market conditions.
3. Proactive Risk Management

 Application in My Auditing Work: Risk Assessment and Internal Controls: I can apply risk
management techniques to evaluate the effectiveness of a company's internal controls and risk
mitigation strategies. This includes assessing how well the company identifies, measures, and
manages financial risks such as market risk, credit risk, and operational risk. When auditing a
company’s financial statements, I would review the company’s risk management practices related
to hedging and derivative use. This involves examining how the company uses financial instruments
to manage currency, interest rate, and commodity price risks, and ensuring that these practices are
properly documented and accounted for in the financial statements.

4. Strategic Capital Management

 Application in My Auditing Work: Capital Structure Analysis: I can assess the

appropriateness of a company’s capital structure and financing decisions. This involves reviewing
the company’s debt and equity financing arrangements and evaluating their impact on financial
stability and cost of capital. In an audit of a company’s long-term liabilities, I would review the
terms of debt agreements, analyze the cost of debt, and assess how these arrangements impact
the company’s financial ratios and overall capital structure. This helps ensure that the company’s
reported financial position accurately reflects its financial obligations and equity.

5. Informed Decision-Making

 Application in My Auditing Work: Strategic Alignment and Performance Evaluation: I can

evaluate whether financial decisions and performance metrics align with the company’s strategic
goals. This includes reviewing how well financial performance is measured and reported and
whether the metrics used provide meaningful insights into the company’s strategic direction. When
auditing a company’s performance metrics, I would review whether these metrics align with the
company’s strategic objectives. This involves assessing whether key performance indicators (KPIs)
and balanced scorecards are effectively used to monitor and report on the company’s progress
towards its strategic goals.

Conclusively, by applying these advanced financial techniques and insights from the capstone project, I can
enhance my ability to conduct thorough and accurate audits. This includes a deeper evaluation of
valuations, financial models, risk management practices, capital structure decisions, and performance
metrics. These applications help ensure that financial statements are fair and accurate, internal controls are
effective, and strategic decisions are well-supported by financial data.